The success of a social market economy model, which strives to ensure that labour and business remain in balance, has proved effective in Germany, but requires freedom, responsible participants and social justice as its core values, says Federal German Parliament member Michael Glos.

Glos was a master craftsman before entering German politics in 1970 and served as German Minister of Economic Affairs and Technology from 2005 to 2009.

“The social market economy model is highly specific to Germany, but much of the credit for the country’s economic success is because of the model.

“A social market economy is far removed from unfettered capitalism or a socialist State. It represents a potential midway between capitalism and socialism,” he says.

“It is not easy to implement a social market economy and it requires control and discipline to avoid the dominance of either the social element or the economic element. A social-partnership atmosphere is essential in the country, where there is trust between unions and business and where, as workers achieve productivity, wage increases follow,” notes Glos.

Germany has a tax system that weighs more heavily on those who earn more than on those who earn less, but it does not take everything away and aims to provide a balance by safeguarding the principle that performance pays, he highlights.

However, the success of the social model rests essentially on the presence of a strong small and medium-sized enterprise sector, which forms the backbone of the economy. Germany has maintained its industrial base, in contrast to other European countries, Glos notes.

Further, employee associations and trade unions are necessary, but they must be able to regulate wages and collective agreements, while government plays a crucial role in the broader coalition to pursue the policies needed for success, he adds.

Coupled with the State’s role to drive policies and maintain balance is the need by public and private organisations to develop research and development capacity to drive innovation. It is also necessary to maintain clear separation of the functions of cooperative and private banks and government institutions.

“The social market economy in Germany is a fully fledged competitive system and, in practice, it means that large and small companies are able to prosper and ensure that people have good prospects of finding work and earning a decent wage.”

In addition to that, businesses engage with and create opportunities for the State to align its actions with the pressures they experience as part of the goal of maintaining a fair society, he says.

“In Germany, youth unemployment is the lowest in the European Union. Fewer than three-million people are unemployed, compared with a record of more than 41-million people that are employed in Germany.”

“The employment figures are a key factor in Germany’s current economic success and the reason why the German euro is stronger than the euro elsewhere,” he quips.

The success of the system is also the result of government investment in economic policies, such as postwar Minister of Economics Ludwig Erhard’s policy to support the development of factories and to abolish price-fixing and production controls, he concludes.